You may or may not like stocks that pay dividends, but many dividend investors have a “gut feeling” about companies that pay dividends having better returns, and, according to Ned Davis Research, they’re right. Spencer Jakab writes in The Wall Street Journal that people prefer receiving dividends “because it works.” He continues:
A recent study of data of thousands of Vanguard customers by finance professor Meir Statman and Vanguard managers Paulo Costa and Sharon Hill seems puzzling too—at first. It compares people who own dividend-income funds to plain-vanilla equity funds.
Instead of buying the dividend funds for actual income, though, investors were about as likely to just reinvest the money. Both groups mostly did, especially if they weren’t retired yet.
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And they are right. Data from the past 50 years compiled by Ned Davis Research shows that the annualized return of dividend payers in the S&P 500 was 9.2%, compared with only 4.3% for nonpayers, and with less choppiness too.
Dividend payers would have left you with 10 times as much wealth before taxes over that time as nonpayers. They also easily beat an equal-weighted basket of all companies in the index.
Action Line: When you want to talk about dividends in your portfolio, email me at ejsmith@yoursurvivalguy.com. And click here to subscribe to my free monthly Survive & Thrive letter.
